By: Amanda Bhikhari
Many physician groups and health care companies will enter the market at some point to sell their business. In the rare case, the selling group will already have a buyer who is ready and willing to pay and close on the business sale. More often than not however, most sellers will utilize the services of a business broker to help find a suitable buyer, and will compensate the broker on a commission basis upon closing. Unlike real estate closings, whereby the main concern is the title of the property being conveyed, medical practice sales require much more detailed representation on all aspects of the business, including but not limited to, real property, existing contracts, existing patients, and medical equipment.
Before signing a business broker listing agreement, ensure that the following points are considered to avoid potential pitfalls:
- Is the scope of service clearly defined?
- What does the broker provide? The role of the broker is to ensure your business is sold, but what duties substantiate their compensation during the term of the brokerage agreement? Services that should be included are market analysis, due diligence, marketing (which should be for the duration of the listing agreement), transaction analysis, recommendation of supporting professionals, participation in negotiations, delivery of the executed PSA, and pre-closing activities.
- Who is negotiating the sale?
- As the Seller, your agreement should be clear that the broker can not negotiate on your behalf. The agreement should make clear that the broker is an independent entity and not an agent of the Seller. The broker should not be able to bind or obligate the Seller to any third party, including buyers, other brokers, agents, or finders (even within the same brokerage company).
- Who is the representing you?
- Many times, a lead broker may sign and execute the business broker’s listing agreement, but then assign the duties to another agent or broker with their team. This has led to much dissatisfaction on the part of Sellers, as the relationship of trust was built with the broker they worked with to sign the listing agreement. The listing agreement should set forth all the names of the specific brokerage team members representing the Seller. Once the list is set, the Seller should have the right to approve any changes to the brokerage team.
- Are you clear on the terms of commission and brokerage fees?
- Brokerage fees and compensation should solely be paid upon the payment of gross sales proceeds and only if, as, and when a closing occurs and the purchase price is paid in full to the Seller. Clear terms should define under what terms the broker is paid, and not allow for any tail end or additional compensation other than what is agreed upon.
- Are you being indemnified?
- In order to further protect you as the Seller, the Listing Agreement should provide that the broker will indemnify the Seller and limit the Seller’s damages under the agreement.
- Is the broker clear on terms of the sale?
- It is very important to create a schedule which specifies exactly what terms of the business are for sale. Will the sale include current patients? Will the sale include accounts receivables? Are your vendor contracts assignable? Will the sale include employees and staff or does the buyer want to bring their own?
Relationships with business brokers can be an excellent and efficient way to sell your healthcare business quickly. An experienced broker should have an abundance of knowledge of the market, relationships with other brokers and potential buyers, and marketing tools and resources that a seller would not be able to easily provide on their own. It is highly recommended to use a broker to sell your practice. It is also highly recommended that as in any business relationship, the terms and expectations of that relationship are clearly defined in any contract or supporting agreement.